Maybe the third time is really only the charm in Baltimore. But at least sometimes a third shot at a sufficiently pled complaint in North Carolina can still carry the day.  In Trail Creek Invs., LLC v. Warren Oil Holding Co., 2023 NCBC 71, the Business Court found that the “leave shall be freely given” clause of Rule 15 still has its historic flexibility. But there are limits.

In Trail Creek, the Court considered a second amended complaint that sought to add “beefed-up allegations” in support of fraud and civil conspiracy counts which previously had fallen to a Rule 9 specificity challenge. Id. ¶ 11. Plaintiff also sought to add new allegations that contractual indemnification provisions suffered from latent ambiguity that required the Court to consider parol evidence to interpret them.

Plaintiffs’ attempt to buttress their fraud and conspiracy counts previously dismissed without prejudice ran in concert with the Court’s observation that its prior dismissal order “implicitly allowed Trail Creek the opportunity to timely file a motion seeking permission to amend the pleading to address the deficiencies identified by the Court[.]” Id. ¶ 19. As a procedural matter, Judge Davis noted that the Court was “unable to say” a 43-day gap between its dismissal order and filing of the second amended complaint was “unreasonable.” Id. ¶ 20.

A more interesting, but unresolved, legal question is whether Plaintiffs’ “beefed-up” allegations “relate back” to filing of the original complaint and avoid statute of limitations problems. Even though the Court noted that its dismissal order implicitly allowed re-filing of the fraud and conspiracy counts, defendants argued that claims subject to Rule 9 pleading requirements should be treated differently. Defendants based their argument on two cases that hold “relation back” is treated uniquely in these settings (Id. ¶ 25):

“[When a claim requires unique factual allegations, those allegations must be present in the original complaint to meet the requirements of Rule 15(c) so that the amended complaint relates back to the original complaint.”

D&B Marine, LLC v. AIG Prop. Cas. Co., 288 N.C.App. 106, 116 (2023)

“[W]hen a claim requires unique factual allegations such as fraud, medical malpractice and lack of informed consent, there must be some of those unique allegations present in the original counterclaim.”

State Farm Fire and Cas. Co. v. Darsie, 161 N.C. App. 542, 546 (2003) (emphasis added)

The Court deferred making a call on limitations issues pending a more developed record. However, Judge Davis suggested it was “not entirely clear” that D&B and State Farm should be read to hold that Rule 9 deficiencies cannot “relate back” when a court affords a repleading opportunity through a “without prejudice” dismissal. Id. ¶ 26. No doubt, the parties will argue on another day whether the “presence” of the claims in the original complaint, even if insufficiently plead, means that “some of those unique allegations” means what it says.

The Court took a narrower view of Rule 15 in considering the second amended complaint’s allegations on latent ambiguity that had made no prior appearance in the pleadings. Where nearly a year had passed since the original complaint’s filing, the Court found the delay in advancing the “ambiguity” claim was “excessive.” Id. ¶¶ 34-37. Moreover, the Court expressed concern about such a delay in bringing the claim where its facts were ostensibly under the control of a pleading party that had been “directly involved in negotiating” the terms of the indemnification provisions. As Judge Davis noted (Id. ¶ 38),

“There is no reason why [plaintiff] should have needed to obtain discovery in order to know of the discussions that took place between the parties during the negotiations leading up to the [purchase agreement].”

Takeaways

• For contract drafters, the Business Court noted that inclusion of merger clauses is especially useful. Noting that North Carolina courts have “consistently upheld them,” it reminded that these measures are “designed to effectuate the policies of the parol evidence rule; i.e. barring the admission of prior and contemporaneous negotiations on terms inconsistent with the terms of the writing.” Id. ¶ 44 (quoting Zinn v. Walker, 87 N.C. App. 325, 333 (1987).

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